(Bloomberg)—PetSmart Inc.’s efforts to take its Chewy.com unit public are proving a boon for bond and loan holders as the company wraps up a dispute with creditors over the booming online business.
The closely held pet superstore filed a registration form Monday for an initial public offering of Chewy. Proceeds from the potential IPO would be used for working capital and other general corporate general purposes, the company said in a statement. The number of shares and the price range for the proposed offering have not been determined, the company said.
Chewy generated $3.53 billion in revenue in 2018, a 67.9% increase over last year, and it hit a 100% compound annual growth rate over the past five years. The majority of that revenue comes from its Autoship program, which ships products out on a regular schedule. Autoship revenue has grown to 66.0% of revenue in 2018 from 56.0% of revenue in 2014. Average order values for these recurring shipments are about 6% higher than one-off purchases according to the filing.
PetSmart’s $4 billion loan due 2022 jumped to more than 96 cents on the dollar after the announcement of the IPO filing, up about 2 cents, according to people familiar with the pricing. The company’s bonds were among the top performers in the U.S. high-yield market. Notes due 2023 and 2025 rose more than 4 cents, according to Trace bond trading data.
“Depending on the valuation that the IPO provides and whether proceeds are used to pay down debt, the transaction may be beneficial to debt holders as well as the equity holders due to a potentially decreased overall debt load and strong public market valuation,” said Ben Briggs, a high-yield and distressed-credit analyst with INTL FCStone.
The retailer became entangled in a dispute between its debt holders and private equity owners—a group led by BC Partners—after it moved a portion of its shares in the Chewy unit out of creditor reach. Lenders argued that PetSmart was insolvent at the time of the transfer, and that the move was thus fraudulent.
Phoenix-based PetSmart twice proposed an amendment to its loan documents in an attempt to squash the dispute. It was approved by a majority of loan holders after one of its largest lenders Apollo signed on to the deal. The changes, which were later adopted by the loan’s administrative agent, tightened restrictions on the company to monetize the Chewy business and limited lenders’ rights to pursue further litigation over the asset transfer. Bond holders were not party to the agreement, however.
“The litigation was settled two weeks ago, so they are much happier now,” Raymond Svider, chairman of BC Partners, said in an interview Monday at the Milken Institute conference in Beverly Hills, California.
PetSmart last year pegged the value of Chewy at $4.45 billion in private documents shared with investors, according to people with knowledge of those documents.
PetSmart’s fiscal fourth-quarter financial results showed Chewy’s revenue rose about 70% year-over-year, giving the company positive growth even as its bricks-and-mortar revenue was little changed over the span.
PetSmart is No. 58 in the Internet Retailer 2019 Top 1000.Favorite